Fannie and Freddie Bailout: The Ultimate Absurdity

Help! The inmates are in control of the asylum! At least that was my first impression, and it was, I think, understandable. Fannie Mae and Freddie Mac were drowning in all those toxic mortgages that people weren’t paying. Meanwhile, Fannie and Freddie were telling all their friends, to whom they had sold toxic mortgages, that they didn’t have to worry about a thing. But, everyone knew that Fannie and Freddie were in the process of going down the proverbial tubes.

Investors, worldwide, were beginning to panic. So, over the weekend, U.S. Treasury Secretary Henry Paulson steps in and says ,”Don’t worry, I’ll save everyone in the world! From now on the American taxpayer will pay off all, and I mean all, of those nasty, defaulted, toxic mortgages. Relax, all you rich banker folk. You won’t lose a dime!” The worldwide banking community beathed a collective sigh of relief. Stock markets skyrocketed. Financial firms that had been on the ropes saw their stock values soar Monday morning. Everybody was happy again.

“Huh?” I thought, “Henry, you want the U.S. taxpayers to pay for all these mortgages that the deadbeats won’t pay for? Wait a minute! It’s the U.S. taxpayers who are the deadbeats! Henry! You’re asking the deadbeats to pay for the debts of the deadbeats? How is that going to work? Isn’t that sort of like trying to go faster than 88 miles an hour in a specially equipped Delorean? I mean won’t that somehow effect the space-time continuum or something?”

Hold on. Wait a minute. Take a deep breath…I think I’m beginning to understand the concept a little better. Let’s see. There are basically two types of U.S. taxpayers: 1. those people who defaulted on their toxic mortgages, and 2. those people who didn’t. OK. Now of those category 2 taxpayers, there are also two types : those who own houses and those who don’t. The key thing is that none of them are mortgage deadbeats, i.e. they have money and they pay taxes. Soooo… these people, the ones who never had any of the toxic mortgages, are the people who are going to pay off the toxic mortgages, so the bankers won’t lose any money. Is that right, Henry? Smart. Real smart. Clever actually. I stand corrected (once again).

Whew! So, this really isn’t a case of the “inmates running the asylum” after all. Nope, it could probably be more accurately described as “Watch out!!! The fox is in the hen house!!”

As I understand it, the banks, in their ungodly haste to make billions and billions of dollars from exorbitant interest rates as part of the United States Housing Ponzi Pyramid Scheme (USHPPS), went out and made ill-advised (read “really stupid”) loans to anyone who could be certified as legally alive and breathing. In the process, a few million deadbeats seem to have slipped through the 18 million cracks in the ceiling and received billions and billions (I’m starting to feel sort of like Carl Sagan here) of dollars worth of certified, first class, toxic mortgages. Of course they never paid them. I mean who in their right mind is going to pay off a toxic mortgage? Think about it…who would do that? Heh heh…. Heh heh…. Thought about it yet, my little chickens?

Now, you may wonder, what about the fox? What’s in it for him? You mean foxes, my friends, foxes: the rich, old foxes who own the banks that made the bad loans to the deadbeats. And, you also mean the rich old foxes who bought the toxic mortgages from Fannie and Freddie, right? What about them? Don’t you worry your little head about them. See, those rich folk aren’t going to lose a dime, even though they made some really, really, really, stupid investment decisions. But, it’s kind of like playing a special version of Monopoly where the rich folk are playing with play money and you are playing with real money. No matter what happens, in the end you lose and they win.

It’s not like when you go to buy some stock on the stock market and it goes down and you lose money, or like when you start a small business and you put all your hard-earned money into it and you work 16 hours a day for a year and then you watch it go belly up and then you get a job at Wal-Mart or Home Depot and you wind up paying off your business loans for the rest of your life. This is a different kind of game that the wealthy bank owners invented. Fun, huh?

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